My employer does not match my 401k contributions. I have been told by others that I may be able to increase my contributions to my 401k over and above the 15% cap imposed by my employer. I have spoke to them to no avail. They keep telling me that it would be to expensive. I don't know how. They don't match! :-) Anyway, is this true? Can I really bump it up more? I would like to, even though they don't match. Any input, greatly appreciated.(Been to Fool for years. Casual user, this is my 1st post)
Each 401k plan is a contract between the employer and the financial management company hired to administrate the plan. All the details are agreed upon by the two parties. While I can not see either why 15% might be a cap, I can guess that the cost of changing the agreement with the administrator could be the culprit. However, 15% is not bad. Without the match, though, unless you really like the find selection I would consider allocating after-tax funds into a Roth and put remaining pre-tax funds into the 401k.FuskieWho promises that any advice given is completely unprofesional...
Actually, the terms of the plan are governed by the plan document itself. Most administrators couldn't care about any cap on the contribution amount (and many would prefer to have a higher cap - especially if they are receiving asset based fees). 15% is a historical number, that many 401(k) plans had in existence prior to recent (within the last several years) tax law changes. Prior law limited the amount that could be contributed to all defined contribution plans, including 401(k) plans, from all sources (including employee deferrals, employer matching contributions, employer profit sharing contributions and certain employer pension contirbutions) to 25% of each participant's pay, and further limited the deduction for th eemployer for contributions to profit sharing plans (which include 401(k) plans) to a cumulative 15% of total eligible payroll (for all participants). Many plans had the 15% deferral limit to accomodate meeting these tax law based limits.The law has changed eliminating the 25% cap on contributions, and moving the 15% limit on deductibility to 25%, but some employers haven't changed for various reasons. First, this would entail an amendment to the plan, which could mean legal fees. Second, there may be a payroll system limitation which would have to be changed to accomodate this. Third, maybe the employer just isn't aware of the law changes.
The reason as mjolah pints out is due to old tax laws, there is NO reason now to limit employee elective deferals to 15%, unless they have had testing issues or are just unaware of the change in the law. A prototype document is relatively inexpensive to amend, usually just a couple of hundred dollars. I would ask them to review the entire document and make other changes as well. Most providers do not charge for each amendment if they are being done simultaneously. It can be a limitation, if you make $50k, a 15% limit only allows you to contribute $7,500 when the law allows for $13k this year. Remember, the 401k is for the employees benefit, maybe if you and a few others asked, they may reconsider.Bill
I contribute 6.65% to my 403b. My employer matches 8.5%. My 403b rep told me that I could not increase my contribution. True or false?Thanks!
The IRS will allow a person to contribute up to $13,000 to their 403(b) in 2004. That limit is $16,000 if you are turning 50 this year or are already over 50. Your employer is allowed to impose lower limits than these, so you may be restricted to the percentages you gave. Bill
Thank you Bill. I think it is the case that my employer does impose lower limits, so if I want to save more for retirement, I guess I'll have to go with a Roth.
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